Growing Wheat or Weed is Economic Activity, and so is Making Booze

In 1868, Congress passed a law forbidding home distilleries. That law remains on the books today. It is codified as 26 U.S.C. § 5178(b). Last week, a unanimous 3-judge panel of the U.S. Court of Appeals for the Fifth Circuit held that the law is unconstitutional because it exceeds the powers granted to Congress. As I shall explain, in light of a key concession by the government, that holding is arguably correct. As I shall also explain, the concession was a blunder, and while the outcome of the case is defensible, much of the Fifth Circuit opinion is not.

Let's start with the statute's text. As relevant here, it provides: "No distilled spirits plant for the production of distilled spirits shall be located in any dwelling house, in any shed, yard, or inclosure connected with any dwelling house . . . ."

Although codified in Title 26, which is the Internal Revenue Code, and thus arguably an exercise of the power of Congress to impose taxes (about which more in a moment), the law is most readily sustainable as an exercise of the power of Congress to regulate interstate commerce. Hold on, you say: How is a home distillery used to make spirits that need not ever be sold commercially, much less sold interstate, a proper subject of regulation under the Commerce Clause? The answer to that question will be obvious to anyone who has gone to law school since October 1942, when the Supreme Court decided Wickard v. Filburn.

Farmer Filburn objected to a penalty imposed on him for growing more wheat than he was allotted under a quota pursuant to the Agricultural Adjustment Act of 1938. The mere growing of wheat on his farm, he said, was not in any way a form of interstate commerce. The Court didn't care. The more wheat an individual farmer grows, the more the farmer can sell (either directly or via the products of the animals to whom the wheat is fed); and even if the farmer sells none, growing and consuming wheat and products derived from it reduces market demand for wheat.

As with wheat, so with weed. In 2005, in Gonzales v. Raich, the Court rejected the contention that Congress cannot regulate home-grown and home-consumed marijuana pursuant to the Commerce Clause. As Justice Stevens put the point for the majority, the "production" of a commodity for which there is a market is regulable "economic activity" even if the particular objects of regulation do not end up in that market.

And as with wheat and weed, so with booze. Subject to some limits not relevant here that arise out of the 21st Amendment (repealing prohibition), Congress has the power to regulate the distilling of spirits. Just as it can require, per the Fair Labor Standards Act, that people who work in a distillery be paid fairly, and that per the Occupational Safety and Health Act, the working conditions in a distillery meet various safety and health standards, so it can regulate the site of production. All of that follows from the proposition that distilling spirits is regulable pursuant to the Commerce Clause.

Or at least I would have thought before I read the dubious district court opinion that the Fifth Circuit affirmed last week. There, Judge Pittman (a 2019 Trump appointee) held that for intrastate economic activity to be regulable under the Commerce Clause, it must: 1) substantially affect interstate commerce in the aggregate (citing Wickard); (2) serve a comprehensive statute that regulates commercial activity on its face (citing Raich); AND (3) be necessary to make that broader commercial regulation effective (again citing Raich).

But here's the thing. I put "AND" in all caps to emphasize that Judge Pittman made that bit up. There is no Supreme Court case (and, so far as I'm aware, no federal appeals court case either) that says that those three elements are all required in conjunction. Rather, prior cases suggest that they are to be connected by an "or." Because home-distilling of booze is unquestionably economic activity that, in the aggregate, affects interstate commerce, it is regulable by Congress. Full stop. The provision in question should have been upheld as a regulation of interstate commerce.

Yet inexplicably, the government chose not to appeal the Commerce Clause ruling. At first I thought perhaps the Trump Department of Justice chose not to appeal the Commerce Clause portion of Judge Pittman's ruling on ideological grounds. However, the appellate brief waiving the Commerce Clause as a basis for sustaining the law was filed during the Biden administration. And it plainly waived the argument, as the Fifth Circuit said. The appellate brief argued that the plaintiffs lacked standing and that, even if they had standing, the law should be sustained under Congress's power to lay and collect taxes. There was no appeal on the Commerce Clause. That was the blunder to which I referred above.

Accordingly, after concluding (rightly, in my view) that the plaintiffs have standing, the substantive portion of the Fifth Circuit's opinion concludes that the law cannot be sustained on the basis of the power to tax. Before explaining what I think is defensible and what is not in the Fifth Circuit decision on the merits, it's worth asking how, according to the government, the law implicates the taxing power.

The answer is fairly straightforward. When the law was enacted in 1868, it was relatively easy for distillers to evade the tax by hiding their activity. They did so by operating out of their homes rather than in large and obvious distilleries. By making it a crime to operate a home distillery, Congress increased the cost of doing so--which, in turn, made it easier for federal revenue officers to identify distilleries and collect the revenue due from them. This is a classic example of a law that is not itself an exercise of the relevant power (because a prohibition on home distilling is not a tax on home distilling) but that is necessary and proper to the power (because it facilitates the collection of taxes on distilling that occurs elsewhere).

Anybody who has read the broad language of McCulloch v. Maryland (1819) or, much more recently, United States v. Comstock (2010), will recognize the foregoing as a very standard necessary-and-proper argument. Creation of a national bank (in McCulloch) is not itself taxing, spending, or the regulation of interstate commerce, but it facilitates the exercise of all of those powers. Civilly confining a person who is mentally ill and dangerous (in Comstock) is not itself an exercise of the power to say, create a post office, but it is necessary and proper to that power as applied to someone who committed mail fraud and then, while serving a sentence in a federal prison, developed a mental illness that makes him dangerous, because civil commitment facilitates the initial imprisonment, which facilitates the criminalization of mail fraud, which facilitates the post office doing its job. The argument for validity under the Necessary & Proper Clause is much more direct with respect to the home distilling prohibition than with respect to the law upheld in Comstock. Thus, it follows a fortiori from Comstock that the home distilling prohibition is necessary and proper to the taxing power.

So why do I say that the Fifth Circuit decision is defensible? Because while running a home distillery was a means of evading taxation in 1868, it very likely is not today. Modern distilleries produce tens or even hundreds of thousands of barrels of spirits per year. Hidden untaxed output from basement or garage distilleries is thus inconsequential in its revenue impact. Or at least that argument strikes me as plausible, given what I know (which, admittedly, is essentially nothing) about distilling spirits.

Thus, if defensible, the Fifth Circuit ruling relies on a very modest version of living Constitutionalism of the kind acceptable even to most originalists. A law or practice can be constitutional when enacted and for some considerable period thereafter, given conditions at the time, but unconstitutional when conditions change. Thus, although the search-incident-to-arrest doctrine at one time allowed police to search any item found on a person, the Supreme Court carved out a new exception to that principle for mobile phones in Riley v. California, given the unprecedented ability to look into every aspect of a person's life occasioned by a mobile phone search.

Yet while the conclusion that the home distilling prohibition is no longer necessary and proper to the taxing power is defensible, the Fifth Circuit opinion says some other, quite dubious things that suggest it thinks the law was never necessary and proper. Among those dubious statements is its reliance on the Supreme Court's opinion in United States v. Dewitt (1869). There, the government sought to sustain a prohibition on selling one kind of oil as necessary and proper to collecting revenue on sales of other kinds of oils that were taxed. The idea was that forbidding the untaxed oil would increase demand for, and thus revenue derived from, the taxed oil. The Court rejected this argument but in so doing expressly distinguished the very home distillery ban at issue here:

we have been referred to provisions, supposed to be analogous, regulating the business of distilling liquors, . . . but the analogy appears to fail at the essential point, for the regulations referred to are restricted to the very articles which are the subject of taxation, and are plainly adapted to secure the collection of the tax imposed; while, in the case before us, no tax is imposed on the oils the sale of which is prohibited. If the prohibition, therefore, has any relation to taxation at all, it is merely that of increasing the production and sale of other oils, and, consequently, the revenue derived from them, by excluding from the market the particular kind described. 

Dewitt thus not only doesn't support the Fifth Circuit's conclusion; it supports the opposite conclusion. There are other problems with the Fifth Circuit's analysis but I won't dwell on them. I'm reserving most of my criticism here for the Department of Justice lawyers in the Biden/Garland era for waiving the Commerce Clause argument on appeal.

Finally, I should make clear that I take no position on the policy wisdom of the federal prohibition on home distilling. A tiny bit of Internet research reveals that there are some serious risks involved in the activity, including explosion, fire, and toxicity. Whether those risks justify prohibition or mere regulation, and whether that should be accomplished at the federal, state, or local level are questions about which I have no expertise or opinion, but, in any event, they were not at issue in the Fifth Circuit case.

--Michael C. Dorf